Market Update Autum 2010

HOTEL MARKET PLACE

2010 has stated on a positive note. Our telephones have rung and there appears to be enquiry to purchase hotels.

We are now in a buyer's market ... where the purchaser decides price! There are a number of key factors effecting price:

Hotel Profitability: A vendor needs to provide up to date financial information, demonstrating the ACTUAL (not potential) business profitability and its future sustainability.

Hotel Presentation: Purchasers want everything ... TAB, glycol bulk beer system, modern furnishings, large flat screen T.V's, Poker Machines Entitlements, outdoor areas.

Owners Unit: Many decisions are made by the female partner .... With one of the most important being; Yes I can live here! Expectations are fully self-contained, modernised with space.

Location: Not just overlooking the beach, how much competition, how far from family facilities such as schooling?

Poker Machine Entitlements: Purchasers want to minimise the goodwill component of the value. The more machines for a lower price the better.

Conservative prices are further reinforced by a steady flow of receivership sale occurring in the market place. Values have returned to the traditional levels.

The Freehold Hotel market place has broken into a number of sub-markets with each having their own determinants of price.

These markets can be roughly described as follows:

a)Hotels without gaming machines.

b)Freehold hotels to $1.5m with Poker Machine entitlements underpinning the value. (property = asset value NOT business value)

c)Freehold Hotels to $4.5m where value is directly related to Business Profitability. (Gaming machine numbers are still important yet price is determined by overall hotel profitability)

d)Premium freehold properties (generally in excess of $5m) sought after by corporate style purchasers.

The market appears to be valuing PME's at approx. $100,000 per machine (as they are for single country transfers) despite the current block (3) of PME's to the city fetching approx. $240,000 and $200,000 for the country.

During the last 18 months there have been a number of properties placed on the market at levels above their achievable price. The market place is rejecting these properties and in fact damaging the perception of these properties even when a price reduction has occurred.

Purchases for hotels in the (b) and (c) markets have in the majority been local or have knowledge of that particular hotel. Many of the potential purchasers are guided by experienced hoteliers who sold their properties during the last few years and believe that opportunities will exist to purchase hotels at returns close to "bargain" prices.

Sales are now only beginning to filter through. There were few sales in the later month of 2009.